Uche Usim, Abuja
The Central Bank of Nigeria (CBN) Governor, Godwin Emefiele has disclosed how careful monetary and fiscal policy fusion helped tow the country out of recession trenches.
Speaking recently at a special convocation ceremony at the University of Nigeria, Nsukka (UNN) the CBN Governor said in a bid to contain rising inflation and to cushion the impact of the drop in foreign exchange supply on the Nigerian economy, the monetary and fiscal authorities took extraordinary measures to meet the extraordinary challenges.
“Some of the measures we took include; monetary policy – over the intervening period of the slowdown in the economy, the CBN embarked on a cycle of tightening which culminated in a July 2016 hike in the monetary policy rate from 12 percent to 14 percent.
“This decision was expected to rein in expected inflationary pressures that may result from exchange rate pass-through to domestic prices, and ensure that inflation expectations are well anchored.
“It was also expected to set off increased capital inflows to the country, which should improve accretion to reserves”, he explained.
Emefiele said another measure was conserving foreign exchange by introducing a demand management approach in order to conserve reserves and support domestic production of items that can be produced in Nigeria.
“In this regard, we analyzed our import bill, and encouraged manufacturers to consider local options in sourcing their raw materials, by restricting access to foreign exchange on 43 items. “Four of these items alone constituted over N1 trillion of our import bill.
“The weakening of the Naira, following the shift to a more flexible foreign exchange mechanism along with the exposure of several banks to the oil and gas sector, impacted somewhat on the balance sheets of domestic banks.
“To support the health of the banking system, the CBN took a number of steps, including: monitoring compliance of supervised institutions with the foreign exchange management framework issued in June 2016 through our risk-based supervision methodology, which also involved reviewing international trade and foreign exchange operations of local banks; monitoring the financial position and performance of supervised institutions; “Assessment of the risk profile and governance management practices of banks In the event of major deteriorations on any key risk indicator, we engaged with the affected bank in order to mitigate concerns and shore-up their capital base”, he added.
Emefiele said in April 2017, the apex bank introduced an Investors and Exporters FX(I&E), which allowed investors and exporters to purchase and sell foreign exchange at the prevailing market rate.
“In addition, exchange rate management was further liberalized following the approval of the “Revised Guidelines for the Operation of the Nigerian Inter-bank Foreign Exchange Market” on June 15, 2016 and its operationalization on June 20, 2016. The commencement of this policy guideline introduced the Naira Settled Foreign Exchange Futures Market”, he noted.
Emefiele said the fiscal authorities concentrated on examining ways in which fiscal policy could support household consumption and business investments, as these two factors make up more than 85 percent of Nigeria’s GDP by expenditure.
“In this regard, the Federal Government budgets were readjusted to adequately address priority infrastructure needs that would support improved investments by the private sector. “This was complemented by various Presidential initiatives on improving the ease of doing business in Nigeria, dismantling regulatory bottlenecks, enhancing competitiveness and industrialization.
“The CBN increased its lending to the agricultural and manufacturing sectors, through targeted intervention schemes such as the Anchor Borrowers Program, Commercial Agricultural Credit Scheme and the Real Sector Support Facility.
“In particular the CBN sought to improve domestic supply of four commodities (rice, fish, sugar, and wheat), which consume about N1.3 trillion annually in our nation’s import bill. The Anchor Borrowers Programme (ABP) which was launched in November 2015 by President Muhammadu Buhari, was designed to build partnerships between small holder farmers and reliable large-scale agro processors, with a view to increasing agricultural output, while improving access to credit for farmers”, he said.